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You’ve Been Lucky. Now, Be Smart: 5 Tips for Lottery Winners

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Are you a gambler? You may not spend your weekends in Vegas, but if you’re like most Americans, you’ve probably dropped a dollar or two at the local convenience store to purchase a lottery ticket. You may buy the tickets after you’ve heard news reports about a big jackpot. Heck, what’s a few bucks when it means you can fantasize for a day or two about the financial freedom millions would afford you and your family? Deep down inside, you may believe that you will not win… but there is always that hope that you will win.

If you are one of the lucky few to win a jackpot big enough to make a difference in your life, you’ll embark on a journey some past winners wish had never happened.

A windfall of cash leaves many big winners worse off than before. They sometimes lose friends, get bilked, spend frivolously without planning, and find the sudden wealth leads them – or their family members – to drug or alcohol abuse.

Smaller winners can be worse off, too. Armed only with a fantasy about what it would mean to suddenly have $30,000, or $100,000 or $1 million, they lack the skills to use it wisely, and flush away a chance at a more solid financial future.

Satisfaction with your money isn’t as simple as just spending it. Planning is critical. So, what steps do you take if you hit a lottery jackpot?

Step #1: Press the ‘pause’ button and take a deep breath.

Don’t rush into anything. Your prize money will be there tomorrow, and next week. It’s time to collect thoughts, and to recover from the shock of winning. Take the time to think it through.

Step #2: Assemble your team.

Planning also involves assembling a team to help you with the many decisions you’ll need to make. Depending on the amount of your winnings, you’ll probably need a CERTIFIED FINANCIAL PLANNER™ professional, a business/estate-planning attorney and a tax specialist. These experts can help remove the emotion from your decision-making. And they can help protect you from the legions of people that will come out of the woodwork in an effort to separate you from your newfound money.

Step #3: Plan.

Most contests will allow you to choose to receive a lump-sum payout, or money for life (I think most lotteries actually use a finite payout window, so you may want to change this). Do you want less, now, but control over a big chunk? Would you prefer a monthly payout that will generally total much more over the course of the payout period and more importantly, help you avoid blowing large sums on frivolous indulgences? Depending upon the size of the jackpot, from a tax standpoint, you may be better off taking the monthly payment. This is where your CFP® professional or another financial professional will crunch the numbers to help you decide how to get the best payout for your situation.

Step #4: Remain anonymous, if you can.

It’s going to be tough to contain your desire to share your good news with others. But, remain anonymous if the lottery you won will allow it. Some states require public disclosure of your winning, and have as a condition of collecting the money that you allow them to use your name and image to promote the lottery. Other states will allow you to take the money without making your name public. If you can, choose the latter.

Step #5: Invest the money.

Did your team help you decide to take the lump-sum, or the periodic payments? The lump-sum will need to be invested, and so may the periodic payments. There is no one-size-fits-all investment for lottery winners; yours will depend on your circumstances and tolerance for risk. You will spend some of the money, and that ability to spend will indeed change your life. But if you invest a substantial portion now, you will be able to keep spending later.

We often associate wealth with success and happiness. So, the instant acquisition of money can be a highly-charged emotional event. There is nothing wrong with basking in the joy that comes with having lots of money. You’ve been lucky. Now be smart: Separate the emotion from the decision-making as you begin to manage your wealth. Your success with your windfall will depend on the quality of your plan and how well you follow it.

Your CFP® professional can help you build a plan with lottery proceeds or any windfall that will protect your interests and take your needs into account.